Distributions

Distributions

Typically, an LLC will pay salaries to some or all members. Also, when profits allow, the LLC can distribute a lump sum among its members. How distributions are made is usually set out in the operating agreement. If the operating agreement is silent as to distributions, the company should follow state law. You should also check with your tax advisor as to the best way to take out profits in your situation.

An LLC is not allowed to make a distribution if such distribution would render the company insolvent. This means if you take money out of the company making it unable to meet normal obligations, you may be forced to pay that money back. For example, if the company has several debts and you sell off its main asset and take the proceeds for yourself, the creditors may be able to sue you personally for that money. But there are a lot of fine points and exceptions to this rule, so if you get into such a situation you should check with an accountant or attorney to get advice about what is permissible.

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